Sales Price for Final K-1

[jakeconmag]

Turbo Tax is asking for a sales price when entering information on my 2018 Final K-1 for a LLC.  I did not receive any distributions when the company closed.  However on the Analysis of Parntner's K-1, Current Year Increase (decrease) Worksheet there is a line item that says Schedule M-2 Additions:  Company Closing for $19,829.  My Partner Basis Worksheet  includes (along with a net long-term capital gain, an ordinary loss, and a net loss under section 1231) a decrease in partnership liabilities of $24,734 which results in $0 basis. My beginning basis was $24,295. Part II L states a beginning capital balance of $-20,171 and Current Year Increase of $20,171 and an Ending Capital account of $0.

I talked to the accountant who prepared the final K-1 and he was no help at all.  He just kept saying all the information you need is in the K-1.  When I asked about sales price he said he wasn't authorized to release that information to me.

I know how to enter the Part III boxes 1-20 but I don't know what to enter when TT asks for sales price and basis.  I did not receive any proceeds nor are any distributions included in Part II L. What do I enter for the sales price?  Do I enter the ending basis of $0 when TT asks for partnership basis?

Thanks for your help!

[tagteam]

Did you sell your interest in the LLC? @Rick19744 

[jakeconmag]

No.  The entire company was either sold or dissolved - I'm not sure which.  

[Anonymous]

on the K-1 does is tax basis checked in part L.

if so

report a sales price of $0 since you say you got nothing for basis $0 could be correct.  can't be sure because many tax preparers will make entries to zero out everyone's capital account on final return

there is a link to disposition worksheet look for it

if tax basis is checked in part L

you can do your own basis calc

take beginning capital

add any capital contributions

for current year increase/decrease - that's all items affecting taxable income and credits  reported in Part III  these increase or decrease your tax basis.      

certain items are ignored - boxes 6b -included in box 6a, 14, 16 - except amounts for foreign tax and other credits, 17 and some items in box 20 - there are too many possibilities some may affect basis some may not 

add income items subtract expenses losses and credits. 

some others might point  out that technically your beginning basis is the beginning capital account + your share of liabilities reflect in box K.,  true.  but the you must reduce basis for the decrease in liabilities  - since ending liabilities should be $0 the decrease would equal the beginning liabilities - so in effect there's a wash.  

if your computation results in a negative amount basis , if everything is correct that represents taxable income to you.   if it's positive then you have a capital loss. 

this should not happen if say for example you at the start of the partnership invested 10% of the capital and through out its life always got allocation of 10% of various items including distributions     but if you cane in latter a different result is possible. .   

[jakeconmag]

HACKITOFF -Thank you so much.  There is a lot to digest. 

The Tax Basis box is checked in Part II L.

Quick question:  You said the following

"you can do your own basis calc

take beginning capital

add any capital contributions

for current year increase/decrease - that's all items affecting taxable income and credits  reported in Part III  these increase or decrease your tax basis."

So I take the beginning balance of the capital account in 2018 or are you talking about doing it from inception?  Also the current year increase/decrease items (other than the ones you stated should not be included) should just be the ones reported in Part III???  Because the $19,829 addition to the capital account reported on the Analysis of Partner's K-1, Current Year Increase (Decrease) Worksheet appears nowhere on the Schedule K-1.   

I REALLY appreciate your help.

[Retired_eng]

Be careful.  TT does not directly handle many aspects of MLP sales well.  I found the following:

MLP sales are a problem area for TT that they haven't addressed for years.  There are a number of sale scenarios that must be dealt with:

1) Partial sales:  In these cases, the capital gains/losses must be fully recognized.  However, if you enter them during the K-1 interview they're treated as passive and suspended (for cap losses) or used to release past years suspended losses (for cap gains).  Neither is correct.

2) Mixed short/long sales:  The K-1 interview only allows one holding period.  There's no way to split between long and short term gains/losses

3) Complete dispositions, all in one holding period:  This is the only case where the K-1 interview works, but you still have to deal with the 1099-B that came in from the broker.

Because of all this, I handle all scenarios the same way:

1. Use the K-1 interview for the 'ordinary gain' portion of the MLP sale, but not the capital gain/loss.  Do this by: 1) enter 0 for sales proceeds, 2) enter the ordinary gain numbers provided on the K-1.  Note that there will be two ordinary gain numbers, one for Regular and one for AMT, and 3) set your basis as the inverse of the ordinary gain (for example, if ordinary gain was 100 (regular) and 90 (AMT), set basis as -100 (regular) and -90 (AMT).  Doing this puts the ordinary gain into all the right spots on your tax return, but sets the capital gain/loss as $0 for both Regular and AMT.
2. Go the the 1099-B provided by your broker.  There will be a cost they provide, which isn't reported to the IRS.  This can be changed, so change it to whatever provides the correct cap gain/loss (you work out the cap gain/loss by using the K-1 worksheet).

This two step process handles all the scenarios above.  Its unfortunate that TT doesn't provide an interview-based way to do this, because I'm sure many people don't notice the problems they're creating in their returns when they follow the existing interview.  But until they do, this will work.